“Pension flexibilities” have been with us for a year and 2 days.

There are great stories which start with similarly bald, terse statements; "Gaul is divided into four parts", "it was Christmas Day in the trenches", "in the beginning was the word". 

Pension flexibilities have been with us for a year and 2 days.

The story Pensions News (PN) is about to tell is probably not a great story. Indeed, it contains some information which has featured in previous editions of PN.  It probably constitutes one of those stories we were never supposed to know about since it highlights some problems surrounding the new (or newish - see line 1) pension flexibilities; problems which PN has mentioned before but which keep coming up because now, they are being taken seriously or seem to be.

The idea in April 2015 was that Mr Osborne would tell us how good "the new pension flexibilities" were, some of us would not notice, others would notice and do nothing about it, others would notice and then take the cash, overlook the (tax) consequences and then buy a noisy Italian sports car on the suggestion of a former pensions minister (a suggestion that was never meant to be taken as advice but that's what happens when one comes out with the sort of comment that certain sections of the press are able to twist to fit into a story) and the whole negative side would have stayed buttoned up.

Then, somebody decided that the new flexibilities represented an opportunity to appropriate the savings of other somebodies and that somebody told a lot of other somebodies who joined in the appropriation exercise. Some of the somebodies who fell for the appropriation exercise were swindled out of their retirement savings and then, to add insult to injury, found themselves faced with another appropriation, a lawful one this time, by the state.  HMRC has issued and is empowered to issue punitive tax demands on anybody who receives an unauthorised payment (a technical term from the Finance Act 2004) from a registered pension plan.  If the somebody has spent, lost or (in some cases) not seen the pension cash, that's too bad for the somebody. The swindled somebodies could be forgiven for wanting to lay the heads on their actual bodies on the nearest train line - not least because "too bad" for them meant "bad twice".  By applying the law strictly (in every sense), HMRC has done reasonably well out of large bodies of somebodies taking their pensions as cash (lawfully or not). See below for more on this.

Information disclosed to PN and, as it happens, the Financial Times (FT), confirms that the pension freedoms referred to above have provided unscrupulous bodies of persons with opportunities for fraud against other bodies of persons; lots of opportunities.  According to Citizens Advice, approximately 10.9 million persons have been "cold called" by organisations inviting them to transfer their pension monies from their registered pension plans to the sort of plan created by an individual named Mr Bernard Madoff some years ago.  Readers may recall Mr Madoff who made off with hundreds of millions by getting people (lots of people) to invest in his "split conversion fund". As a consequence of the increase in the volume and value of pension liberation scams, regulatory bodies have taken action. Perhaps the least memorable action of all that has been taken is the enhanced "scorpion" campaign run by the Pensions Regulator.  This campaign (referred to as the "scorpion" campaign because the Regulator's booklets have little drawings of scorpions on them), directs a reader's attention to the seriousness of the fraud being committed and the seriousness of the consequences of the fraud to victims.  The problem with the campaign is that for it to work, individuals need to find or have it provided to them and then read the Pension Regulator's guidance.  You, the reader, will appreciate the problem with this strategy instantly.  The sort of somebody who is ready to succumb to the persuasiveness of a cold caller whose message is "wouldn't you like cash now?" is unlikely to be the same sort of somebody who will check the small print and then the Regulator's web site before agreeing to get his/ her hands on some cash.  Having made that point, PN sympathises with and is willing to defend the Pensions Regulator. The Pensions Regulator is in a difficult position; it has certain powers but it is not the police force (this, in PN’s view, is generally a good thing). The Regulator is, therefore, doing what it can with the resources available to it.

Pension flexibilities have changed the way the sector thinks about pensions. Some (not PN) have said that, given that the sector has not thought much in the last 20 years, this change is to be welcomed.  It has made legitimate advisers think more creatively (and “creatively” is not a word one normally associates with pensions) about retirement options available for individuals. It has also made pension providers think more creatively about the (lawful) pension options they provide and the prices they charge. On that score, it is hard to criticise Mr Osborne for introducing changes which, a year on, have caused the sector to evolve to a significant degree.  On the other hand, the so-called flexibilities have given way to inflexible, intractable consequences.  They have made criminals think so creatively that a lot of people have had their pension monies used for things which have nothing to do with pensions or, in many cases, with lawful, legitimate investment. Many of the unwitting victims fallen have lost out twice; once to the fraudsters and then again to HMRC. PN hopes that the next twelve months sees regulators take more action and, the slightly unfair dig at the Pensions Regulator aside, the signs are good.

Referring back to an earlier point, one very clear winner of the new flexibilities is HM Treasury.  The new flexibilities have seen HM Treasury take £900m in taxes from people "cashing in their pensions- £200m more than anticipated" (according to the FT).  If Mr Osborne's idea was that he would get "cash now" when he introduced the new flexibilities, he has achieved his objective with something to spare. Perhaps that's the part of the story which nobody, not even Mr Osborne, thought could be told.

Until next time....